Is Debt Really The Problem… or is it something else?, By Bill Westrom, Truthinequity.com


Mainstream media, the Government and consumers themselves vilify debt as the root of the consumer’s financial plight and the root of a weakening country. Debt is not the problem; it’s the management of debt and the way debt is structured that is creating the problem not the debt itself. Unless you win the lottery, invent a cure for cancer or get adopted by Bill Gates or Warren Buffett, debt will be something you will have to face somewhere along the course of your adult life; it’s a natural component of our society.

In today’s economic environment hard working American’s are experiencing a level of fear and financial uncertainty they have never been faced with. This is keeping them up at night wondering how they are going to sustain a life they have worked so hard to build. Americans are also wondering why those we have trusted for all these years; the banks, money managers and politicians, are thriving financially, but don’t seem to be contributing anything of real value to the public? Today, the predominant questions being asked by the American public as it relates to their financial future are; what am I going to do, what can I do, how am I going to do it? We all work way too hard to be faced with these questions. The answers to these frightening questions are right in front of us. The answers lie in the use of the financial resources we use every day. You just need to know how to use them to your advantage.

The crux of the problem for consumers and the country alike lie with misaligned, improper or a shear lack of education on the use of the banking tools we use every day. The three banking tools that we use every day; checking accounts, credit cards and loans are simply being used improperly. The solution lies in educating consumers and institutions to use these tools in the proper sequence and function to manage debt properly, regain control of income and possess the authority to control the repayment of debt. It’s as simple as that. By exposing the failed business model of conventional banking and borrowing practices, realigning them into a model that actually helps consumers get more out of what they own and what they earn, we can once again grow individually, as a society and a nation.

The Truth Is In The Proof.
TruthInEquity.com

Obama Plans Refinancing Aid, Loans for Jobless Homeowners, HUD Chief Says, by Holly Rosenkrantz, Bloomberg


The Obama administration plans to set up an emergency loan program for the unemployed and a government mortgage refinancing effort in the next few weeks to help homeowners after home sales dropped in July, Housing and Urban Development Secretary Shaun Donovan said.

“The July numbers were worse than we expected, worse than the general market expected, and we are concerned,” Donovan said on CNN’s “State of the Union” program yesterday. “That’s why we are taking additional steps to move forward.”

The administration will begin a Federal Housing Authority refinancing effort to help borrowers who are struggling to pay their mortgages, and will start an emergency homeowners’ loan program for unemployed borrowers so they can stay in their homes, Donovan said.

“We’re going to continue to make sure folks have access to home ownership,” he said.

Sales of U.S. new homes unexpectedly dropped in July to the lowest level on record, signaling that even with cheaper prices and reduced borrowing costs the housing market is retreating. Purchases fell 12 percent from June to an annual pace of 276,000, the weakest since the data began in 1963.

Sales of existing houses plunged by a record 27 percent in July as the effects of a government tax credit waned, showing a lack of jobs threatens to undermine the U.S. economic recovery.

House Sales Plummet

Purchases plummeted to a 3.83 million annual pace, the lowest in a decade of record keeping and worse than the most pessimistic forecast of economists surveyed by Bloomberg News, figures from the National Association of Realtors showed last week. Demand for single-family houses dropped to a 15-year low and the number of homes on the market swelled.

U.S. home prices fell 1.6 percent in the second quarter from a year earlier as record foreclosures added to the inventory of properties for sale. The annual drop followed a 3.2 percent decline in the first quarter, the Federal Housing Finance Agency said last week in a report.

Donovan said on CNN yesterday that it is too soon to say whether the administration’s $8,000 first-time homebuyer credit tax credit, which expired April 30, will be revived.

“All I can tell you is that we are watching very carefully,” Donovan said. “We’re going to be focused like a laser on where the housing market is moving going forward, and we are going to go everywhere we can to make sure this market stabilizes and recovers.”

Reviving the tax credit would “help enormously” in the effort to fight foreclosures and revive the economy, Florida Governor Charlie Crist said on the same CNN program. Florida has the third-highest home foreclosure rate in the country, with one in every 171 housing units receiving a foreclosure filing this year.

To contact the reporter on this story: Holly Rosenkrantz in Washington athrosenkrantz@bloomberg.net.

Procrastination on Foreclosures, Now ‘Blatant,’ May Backfire, by Jeff Horwitz and Kate Berry, American Banker


Ever since the housing collapse began, market seers have warned of a coming wave of foreclosures that would make the already heightened activity look like a trickle.

The dam would break when moratoriums ended, teaser rates expired, modifications failed and banks finally trained the army of specialists needed to process the volume.

But the flood hasn’t happened. The simple reason is that servicers are not initiating or processing foreclosures at the pace they could be.

By postponing the date at which they lock in losses, banks and other investors positioned themselves to benefit from the slow mending of the real estate market. But now industry executives are questioning whether delaying foreclosures — a strategy contrary to the industry adage that “the first loss is the best loss” — is about to backfire. With home prices expected to fall as much as 10% further, the refusal to foreclose quickly on and sell distressed homes at inventory-clearing prices may be contributing to the stall of the overall market seen in July sales data. It also may increase the likelihood of more strategic defaults.

It is becoming harder to blame legal or logistical bottlenecks, foreclosure analysts said.

“All the excuses have been used up. This is blatant,” said Sean O’Toole, CEO of ForeclosureRadar.com, a Discovery Bay, Calif., company that has been documenting the slowdown in Western markets.

Banks have filed fewer notices of default so far this year in California, the nation’s biggest real estate market, than they did 2009 or 2008, according to data gathered by the company. Foreclosure default notices are now at their lowest level since the second quarter of 2007, when the percentage of seriously delinquent loans in the state was one-sixth what it is now.

New data from LPS Applied Analytics in Jacksonville, Fla., suggests that the backlog is no longer worsening nationally — but foreclosures are not at the levels needed to clear existing inventory.

The simple explanation is that banks are averse to realizing losses on foreclosures, experts said.

“We can’t have 11% of Californians delinquent and so few foreclosures if regulators are actually forcing banks to clean assets off their books,” O’Toole said.

Officially, of course, this problem shouldn’t exist. Accounting rules mandate that banks set aside reserves covering the full amount of their anticipated losses on nonperforming loans, so sales should do no additional harm to balance sheets.

Within the last two quarters, many companies have even begun taking reserve releases based on more bullish assumptions about the value of distressed properties.

Now there is widespread reluctance to test those valuations, an indication that banks either fear they have insufficient or are gambling for a broad housing recovery that experts increasingly say is not coming.

Banks did not choose the strategy on their own.

With the exception of a spike in foreclosure activity that peaked in early-to-mid 2009, after various industry and government moratoriums ended and the Treasury Department released guidelines for the Home Affordable Modification Program, no stage of the process has returned to pre-September 2008 levels. That is when the Treasury unveiled the Troubled Asset Relief Program and promised to help financial institutions avoid liquidating assets at panic-driven prices. The Financial Accounting Standards Board and other authorities followed suit with fair-value dispensations.

These changes made it easier to avoid fire-sale marks — and less attractive to foreclose on bad assets and unload them at market clearing prices. In California, ForeclosureRadar data shows, the volume of foreclosure filings has never returned to the levels they had reached before government intervention gave servicers breathing room.

Some servicing executives acknowledged that stalling on foreclosures will cause worse pain in the future — and that the reckoning may be almost here.

“The industry as a whole got into a panic mode and was worried about all these loans going into foreclosure and driving prices down, so they got all these programs, started Hamp and internal mods and short sales,” said John Marecki, vice president of East Coast foreclosure operations for Prommis Solutions, an Atlanta company that provides foreclosure processing services. Until recently, he was senior vice president of default administration at Flagstar Bank in Troy, Mich. “Now they’re looking at this, how they held off and they’re getting to the point where maybe they made a mistake in that realm.”

Moreover, Fannie Mae and Freddie Mac have increased foreclosures in the past two months on borrowers that failed to get permanent loan modifications from the government, according to data from LPS. If the government-sponsored enterprises’ share of foreclosures is increasing, that implies foreclosure activity by other market participants is even less robust than the aggregate.

“The math doesn’t bode well for what is ultimately going to occur on the real estate market,” said Herb Blecher, a vice president at LPS. “You start asking yourself the question when you look at these numbers whether we are fixing the problem or delaying the inevitable.”

Blecher said the increase in foreclosure starts by the GSEs “is nowhere near” what is needed to clear through the shadow inventory of 4.5 million loans that were 90 days delinquent or in foreclosure as of July 31.

LPS nationwide data on foreclosure starts reflects the holdup: Though the GSEs have gotten faster since the first quarter, portfolio and private investors have actually slowed.

“What we’re seeing is things are starting to move through the system but the inflows and outflows are not clearing the inventory yet,” he said.

Delayed foreclosures might be good news for delinquent borrowers, but it comes at a high price.

Stagnant foreclosures likely contributed to the abysmal July home sales, since banks are putting fewer homes for sale at market-clearing prices.

Moreover, Freddie says a good 14% of homes that are seriously delinquent are vacant. In such circumstances, eventual recovery values rapidly deteriorate.

Defaulted borrowers were spending an average of 469 days in their home after ceasing to make payments as of July 31, so the financial attraction of strategic defaults increases.

One possible way banks are dealing with that last threat is through what O’Toole calls “foreclosure roulette,” in which banks maintain a large pool of borrowers in foreclosure but foreclose on a small number at random.

O’Toole said the resulting confusion would make it harder for borrowers to evaluate the costs and benefits of defaulting and fan fears that foreclosure was imminent.

http://www.americanbanker.com/issues/175_165/foreclosures-modifications-california-1024663-1.html

Multnomahforeclosures.com: Bank Owned Property List Update for July 2010


July REO list for bank owned property has been added to Multnomahforeclosures.com . REO lists for Clackamas, Multnomah and Washington County has been addd to the site. The homes listed in these files were deeded back or returned to the investor or lender due to the finalizing of the foreclosure process. Many of these homes may already be on the market or will soon will be. It would not be a bad idea to contact the new owner of these properties and find out what their plans are when it comes to their future ownership of the property.

Multnomah County Foreclosures
http://multnomahforeclosures.com/

The Future of Fannie Mae and Freddie Mac to be decided August 17th, by Jim Kim, FierceFinance


The most glaring omission from the Dodd-Frank financial reform act is without a doubt the lack of a plan for Fannie Mae and Freddie Mac. The government-sponsored enterprises remain encumbered with billions in toxic loans, and unfortunately, the movement to fix these institutions has been stuck on the back burner–until now. The Treasury Department has announced it will hold a conference on the future of Fannie and Freddie on Aug. 17. A Congressional hearing will be held in September.

The administration seems bent on offering a concrete proposal in January, which is welcome news, as the travails of these entities are costing taxpayers a lot of money. So far the tab stands at $145.9 billion; it will likely end up topping $380 billion–which would make it by far the most expensive bailout effort to date.

What sort of solutions will be discussed? I doubt anyone will argue that having some sort of body that guarantees mortgages and sells them for securitization is a bad thing. The key will be to somehow retain the salutary effects of this process, which can lower costs, expand the ability of lenders to make home loans, and protect lenders from rate shocks.

Taking the long view, the rise of securitization has been a welcome development. The real estate crash has revealed that there’s a down side if you let securitization run amok. One theory, as noted by the New York Times, is that this process has led to lax lending. “If mortgage issuers passed along the default risk to Freddie Mac and Fannie Mae or to the buyers of mortgage-backed securities, those issuers would have little incentive to screen borrowers properly. While issuers often do have some skin in the game, the enormous amount of both securitization and sloppy lending during the boom made it natural to link the two phenomena.” Indeed, defenders of Fannie and Freddie have long argued that they were pressured to start guaranteeing non-prime loans, to expand the homeownership pie. On top of all of this, securitization has made it harder for loans to be worked out. These are certainly reasonable theories.

The bottom line is that securitization of mortgage loans based on a sound lending standard is a good idea. But how best to do that? Perhaps the biggest issue is whether the government has a role in subsidizing this effort. And if so, what exactly is that role? What are your ideas?

FierceFinance
http://www.fiercefinance.com/story/future-fannie-mae-freddie-mac-be-decided-aug-17/2010-07-29?utm_source=twitterfeed&utm_medium=twitter

FHA Loan Gravy Train Derailing?


After a week of travel to Motown on business, and seeing the housing bust at ground zero, I have to ask you all some questions regarding housing and our government’s role in the quagmire.

Fannie and Freddie dominated the easy loan space to back all borrowers with a pulse from 2000-2007, and now they occupy a toxic waste dumping ground for many a bank’s bad mortgages while trading as penny stocks with all but explicit taxpayer backing.

The new game in town when it comes to financing mortgages circa 2008-2010 is the truly explicit government backed FHA. That federal agency is THE mortgage market, without which no private bank/investor in their right mind would loan money to anyone to buy real estate at today’s prices. Private loan origination to purchase real estate has all but disappeared.

Is the FHA spigot beginning to twist toward the “off” position?

“The Federal Housing Administration’s Mortgagee Review Board (MRB) published a notice today to announce dozens of administrative actions against FHA-approved lenders who failed to meet its requirements. The total amount of originators that used to write FHA-backed mortgages, the report shows, but are restricted from doing so today, has surpassed the 900 mark.”

“The rate of seriously delinquent mortgages backed by the Federal Housing Administration (FHA) declined slightly from May to June, but the gross number of mortgages that are either 90 or more days past due or in foreclosure increased 35% year-over-year.”

“The total value of unpaid FHA mortgages was $865.5bn in June, up 30.3% from $663.8bn one year ago and up 3.3% from $837.8bn in May.”

So we’re on the hook as taxpayers for Fannie and Freddie, and now the FHA is approaching the $1Tillion mark. Delinquencies are skyrocketing, yet the federal government keeps propping up housing prices despite the reality of stagnant wages. Why? How long can this last? When does cold hard cash flow via wages show up in the equation? Perhaps sooner than we all think…

“A total of 168,915 FHA loan applications were received last month, down 6.9 percent from May and 29.4 percent lower than levels seen a year ago, according to the FHA Outlook report.”

How much of an income and/or VAT-sales tax increase is Portland and Oregon willing to pay in order to prop up housing prices via government intervention and real estate bailouts? What business does the government have in financing our privately owned assets?

The sooner the government gets out of housing finance, the sooner most Americans will be able to truly afford a home based upon local wages. Why do we vote for and pay our elected officials to artificially prop up housing and real estate prices?

This post is just a few thoughts from the road, after seeing real estate up close in the Detriot and Southern Michigan area at truly rock bottom prices. Based upon what I saw during my travels, wage based reality bites…

Portland Housing Blog
http://portlandhousing.blogspot.com/2010/07/fha-loan-gravy-train-derailing.html

Important New Regulations Affecting Closing Dates!


From the Desk of Phil Querin, Partner, Davis Wright Tremaine, LLC, PMAR/OREF Legal Counsel

Although the initial annual percentage rate (APR) on a residential loan is disclosed in the Good Faith Estimate early in the purchase transaction, it can change before closing. Under the new rules enacted in the Truth in Lending Act, effective on July 30, 2009 (last Thursday), if the actual (i.e. the final) APR varies from that initially disclosed on the Good Faith Estimate by at least .125%, then there is a mandatory additional three (3) business day waiting period before the transaction can close. So if the final APR isn’t disclosed until late in the transaction, it could potentially force the three (3) business day period to extend beyond the closing date set forth in the Sale Agreement.

As you know, the Oregon Real Estate Forms (OREF) closing date is written in stone – there are no automatic extensions – so if it appears that the APR could be held up or there is any indication that the APR will change at closing, brokers would be well-advised to get seller and buyer to agree in advance to a written extension as a contingency if the final APR causes the three (3) business day period to extend beyond the scheduled closing date. OREF will be meeting shortly to consider some additional language for the new sale agreement form, although it won’t actually get printed and distributed until early next year. In the meantime, I have recommended to my clients that they may wish to consider adding an addendum to their sale agreements with language such as the following: ” In the event that Buyer’s final Annual Percentage Rate (“APR”) differs from the APR initially disclosed to the Buyer in the Good Faith Estimate by .125% or more, the Closing Deadline defined in the Real Estate Sale Agreement shall automatically be extended for three (3) additional business days in accordance with Regulation Z of the Truth in Lending Act ,as amended on July 30, 2008.”

This, of course, is subject to the review of the companies’ principal broker and legal counsel.

Multnomahforeclosures.com Updated with New Notice of Default Listings


The new update of the Multnomah Foreclosures web site (http://multnomahforeclosures.com/) includes NOD listings dating back to February of 2008. This data was added because we had it and there has been a lot of interest in this data by the visitors of the site.

Multnomah Foreclosures
http://multnomahforeclosures.com/

Multnomah Foreclosures Web Site Updated


The new update of the Multnomah Foreclosures web site (http://multnomahforeclosures.com/) includes NOD listings dating back to February of 2008. This data was added because we had it and there has been a lot of interest in this data by the visitors of the site.

Multnomah Foreclosures
http://multnomahforeclosures.com/

Short Sale vs Foreclosure – EFFECT ON CREDIT, By Paul Dean, Evergreen Ohana Group


I thought this information would be beneficial to know, when you are dealing with sellers on a Short Sale basis. Many consumer don’t realize the impact of a short sale on their credit. Read the attached article and commentary from our credit agency below. There are a couple KEY pieces:

1. Foreclosure – lenders won’t do another loan for 4 yrs. (Bankruptcy is now 4yrs also)

2. Short sale – if they keep payments current and their credit is relatively intact, and they do due diligence with the lender to determine how they will report the Short sale on their credit report (ie. “settled” is the best, Deed in Lieu is the same effect as a “foreclosure”) this will result is the least amount of damage to their credit rating. That also goes for a Notice of Default (NOD), even though a foreclosure process was started and the seller is able to sell the home prior to it actually going to foreclosure sale, this will be reported as “foreclosure in process” on their credit, which is treated as a “foreclosure” for credit scoring purposes.

3. Oregon is not a deficiency State. Meaning that Oregon does not pursue the seller for any deficiency. The banks just take the loss, the seller’s credit is damaged, and that’s the end of it.

4. The biggest advantage to sellers in a Short Sale is keeping payments as current as possible and getting the lender to reflect the account as “settled”. That will allow this borrower to secure another home loan sooner (maybe 2yrs), rather than if a foreclosure or NOD (4yrs) is reported on their credit.

I think this is valuable information to share with your sellers.

To Your Success,

Paul Dean
Principal
Evergreen Ohana Group
5331 SW Macadam Ave, Suite 287
Portland, OR 97239

Office: (503) 892-2800 Ext.11
Fax: (503) 892-2803
Email: pauld@evergreenohana.com
Website: http://www.evergreenohana.com
OR ML-21,WA 510-LO-33391, WA:520-CL-50385

Five Ways to Avoid Mortgage Foreclosure, Tips from Expertforeclosurehelper.com


If you fail to make your mortgage payments on time or if you default on your payments, you are in danger of foreclosure. This happens more and more frequently in today’s economic climate. But it is possible to avoid mortgage foreclosure if you know what to do.

Here are a few of the options that are available to you. These are only going to be open to you if you can get the cooperation of your lender.

– See if your lender would be willing to re-arrange your payments based on your current financial situation. This may be referred to as a special forbearance and you may qualify for it if your financial situation has changed. To qualify for this you will probably have to provide information to your mortgage holder to prove that you will be able to meet the payments of the new plan.

– Another option may be a modification of your actual mortgage. This would involve refinancing the amount owed and/or extending the term of the mortgage. The goal is to reduce monthly mortgage payments so they are more affordable for you.

– You may qualify for an interest free loan from HUD to bring your mortgage up to date if you meet certain conditions. This is referred to as a partial claim and your lender can help you with the application process and explain the conditions of this type of loan. You can also contact your local HUD office for more details.

– Another way to avoid mortgage foreclosure is to consider a pre foreclosure sale. The purpose is to sell your home and clear up your debts to avoid foreclosure and damage to your credit. If you know that you will be unable to make mortgage payments even if they are lowered, this may be something to consider. You will have to see if your lender will agree to give you some extra time to sell before foreclosing.

– A final option which should be considered only as a last resort is a deed-in-lieu of foreclosure. In this case you are basically turning your house over to your mortgage institution instead of paying off the mortgage.

Even though you will lose your home this may be a better option than losing it to foreclosure. That’s because your chances of obtaining another mortgage loan at some point in the future are better than if your home is lost due to foreclosure.

These are the main alternatives that you have as you try to avoid mortgage foreclosure. Be sure to contact your lender at the first sign of financial difficulty so they can help you find the option that will be best for you.

Learn about 6 practical steps you can take to avoid foreclosure.

If it’s too late for that, find out how to stop a foreclosure by going to getforeclosurefacts.com

Expert Foreclosure Helper
expertforeclosurehelper.com

Home Purchase Tax Credit, By Paul Dean of Evergreen Ohana Group


As you may know, I have been advertising and promoting the $7500 First Time Home buyer Tax Credit (which is really an interest free loan for 15yrs) expires on July 1, 2009. And there has been very little interest by the general public & buyers.

THIS IS A NEWS FLASH: The new stimulus package may increase that credit to $15K for ANY purchase of a primary home, and IT DOESN’T NEED TO BE RE-PAID!!! This hasn’t been passed yet. But as soon as it is signed into law, I’ll let you know. This is the news from RIS Media today:

“The enhanced $15,000 tax credit offers a powerful incentive for home buyers to get off the sidelines and represents the best opportunity for economic recovery,” said NAHB Chairman Joe Robson, a home builder from Tulsa, Okla. “Congress must make sure that the full $15,000 tax credit remains in the final stimulus plan.”

The bipartisan amendment to the stimulus package, offered by Sens. Johnny Isakson (R-Ga.) and Joe Lieberman (D-Conn.) and approved by unanimous voice vote, would create a $15,000 home buyer tax credit available to all purchasers of a principle residence for one year after its date of enactment. The tax credit would not have to be repaid and buyers could claim it against their 2008 and/or 2009 tax returns.

This could be HUGE for our industry. Stay Tuned.
Thank you for the opportunity to serve you,

Paul Dean
Principal
Evergreen Ohana Group
5331 SW Macadam Ave, Suite 287
Portland, OR 97239

Toll Free: (800) 387-7355
Office: (503) 892-2800 Ext.11
Fax: (503) 892-2803

Website: http://www.evergreenohana.com
Email: pauld@evergreenohana.com

OR ML-21, WA510-LO-33391, WA WA:520-CL-50385

PS. Your business and loyalty are truly valued. I strive to provide all my clients with the very best professional service possible. If a friend or family member would appreciate this level of service, please don’t keep me a secret!

‘Liar Loans’ Earn Their Nickname, Michael Corkery, Wall Street Journal


The failure of Hope for Homeowners to prevent foreclosures is sparking a blame game in Washington. The Department of Housing and Urban Development, which runs the voluntary program, says Congress made it too restrictive and expensive for homeowners.

Congressional leaders say the program’s failure — only 357 people have signed up since Oct. 1 — shows that lenders aren’t willing to modify loans voluntarily and they need to be forced to do so.

But HUD officials say other problems are hampering the program’s success. In order to refinance through Hope for Homeowners, applicants must certify they did not supply false or misleading information on a previous loan application. The HUD program also requires homeowners to supply two years of financial records.

HUD officials believe that people who used “stated income” mortgages which required no documentation of income, are having a hard time qualifying for Hope for Homeowners because of incorrect information on their previous loans. It might not all be the borrowers fault. In many cases, mortgage brokers and lenders fudged loan applications.

Either way, it appears that stated income mortgages, which are known as “liar loans,” are earning their nickname.

Here’s a list of the government sponsored and voluntary lender foreclosure prevention programs and how they are faring so far.

http://blogs.wsj.com/developments/2009/01/02/liar-loans-earn-their-nickname/

Can Home Buyers Get Help When Still Making Their Payments?


Must a Borrower Stop Paying in Order to Get Help?

by Jack M. Guttentag

Inman News

 

“Is it true that mortgage servicers will not help borrowers who are in trouble until they stop making their payments? I am a home retention counselor, and I keep hearing from people referred to me that they have received no response from their servicer because they have not yet missed a payment. I would hate to advise people that they have to stop paying if they expect to get any help if it is not true.”

There is certainly much truth to this because I have heard the same story from numerous people I have counseled, whose stories I have no reason to doubt. The most common thing I hear is that they were told by the servicer to come back when they were two payments behind.

There are understandable reasons why borrowers who are delinquent on their payments receive more prompt consideration than those who are current. To the degree that servicers are faced with more requests for help than they can handle at one time, they have to set priorities. The number of borrowers in trouble has ballooned over the past year, outstripping the efforts of servicers to expand their capacity to deal with them.

Setting Priorities

A plausible way to set priorities is in terms of the degree of urgency of the problem. A borrower 60 days behind in his payment is closer to foreclosure, and if he is going to be saved, he needs faster action than a borrower who is current. So borrowers who are current get placed at the bottom of the list of borrowers requiring special treatment, if they are even placed on the list at all.

This tendency is reinforced by the fear of free-riders. All borrowers would like to get a better deal on their mortgages, whether they have trouble making their current payments or not. If loans are being modified to help borrowers, some borrowers who are not in financial distress will try to take advantage of the situation by pretending that they are. But potential free-riders may not be willing to become delinquent because that would hurt their credit. By only considering modifications for borrowers who are already delinquent, the servicer reduces the number of potential free-riders.

In addition, the practice of dealing only with borrowers who are delinquent keeps loans in good standing for longer periods. Consider the borrower who loses her job but has savings sufficient to cover the payments for some months. Investors would prefer that the borrower make the payment out of savings for as long as possible, since she might find another job during this period, avoiding the need for any modification of the mortgage.

Moving Up on the List

If I were a borrower with reduced income but with good prospects of recovery, I would make the payment out of savings, avoiding the hit to my credit. If I considered the prospects of recovery to be poor, however, I would stop paying and husband my savings. This would move me up on the servicer’s priority list for special treatment. While it also moves up the hit to my credit, that is something that would happen anyway as soon as my savings were exhausted.

If I did not have a problem making the current payment but would have a problem dealing with an anticipated payment increase, I would handle it differently.

First, I would determine exactly how large the payment increase would be. If the increase stemmed from an interest-only loan reaching the end of the interest-only period, the new payment could be found using any monthly payment calculator (including calculator 7a on my Web site) inputting a term equal to the remaining life of the loan. If the increase stemmed from an ARM (adjustable-rate mortgage) adjustment, the new payment wouldn’t be known exactly until a month or two before the adjustment, but an estimate based on the current value of the rate index would provide a good estimate.

A Detailed Budget

Step two is to develop a detailed budget which documents the point that the expected payment is not affordable. Use the form provided by Genworth to show your income, expenses, and assets.

Submit your document to the servicer well in advance of the anticipated payment increase. There is no guarantee that it will lead to a contract modification before the payment increase materializes. However, it gives you a good shot to move up in the servicer’s queue by providing the concrete detailed information that servicers require. It also keeps you out of the hands of the modification hustlers who want to be paid upfront for doing what you can do yourself.