Loan Modification Seminar Notes

Spoke to: the Deputy Commissioner of the DRE, All local congressional staffs, the DA's office and the FBI regarding the modification issues and overall mortgage fraud.
1) Federal and National Level –
A. Current Atmosphere surrounding Obama’s Plan and the Industry:
1) Lawmakers getting calls off the hook about bad modification companies
2) Lawmakers: some understand there is a problem but don’t know how deep, some understand the problem and how deep but don’t know what to do, some understand the problem and think they have solutions but don’t know how to sell them to their colleagues.
3)Anti-California Attitude More Prevalent than ever - We caused the collapse of their 401ks….why should they help us out
4) Foreclosure issue is mainly in 43 states but centered in 3 CA, NV and Florida
5) There will be a further backlash against people and the states that are getting bailed out as the moral hazard issue becomes more prevalent. In the form of new laws.
6) SAFE Act making level of financial responsiblity to stringent....if licensed revoked for loan mods no chance of doing loans again
B. Obama’s Plan - is the result of compromise with the 47 other states and government agencies and is made up of at least 2 parts: Loan Modifications and Refinancing, in addition to the Treasury activity of monetization.. It is only the 1st step.
2) State Level -
A) Sacramento Capitol workers work in Foreclosure Atmosphere, brokers, lenders, Realtors and builders are all targeted for new legislation
B) 81 new bills mentioning mortgages
C) SB 94 if passed would outlaw all upfront fee agreements
D) SB 239 would make it a felony with automatic 2-4 years prison sentence for borrowers and industry participants who commit loan fraud. No Wobble rule and is due to growing moral hazard backlash.
E) AB 260/1830 would prohibit realtors from getting a listing they did a bpo on and prohibit brokers from soliciting their clients for refinances for a period of 1 year.
NOW KNOWING THIS ENVIRONMENT
STILL WANT TO DO LOAN MOD's

Per the DRE Commissioner- Foreclosure Rescue Fraud and Loan Mod Fraud on Top:
1)About 300 companies have received No Objection letters to do loan mods, published on DRE Website (watch the advertising)
2)DRE has looked at over 1200 applications (brokers filling them out incorrectly)
3) Task force of DRE, District Atty's, State Attorney General, and HUD are closing down loan modification shops (Lodi)
4)Any Broker or Attorney taking upfront fees for loan modifications has to be DRE approved
5) All upfront fees have to be deposited into a trust fund...not an escrow
6)Brokers who have approved upfront fee agreements will recieve surveys asking for info on fees collected, disbursed, customer name, outcome, trust fund documents. This survey must match trust fund.
7)DOC Brokers cannot do loan mods
8)Approximately 1700 attorney's being investigated by the state bar per another source
Rules of Professional Conduct Codes 1-310, 1-320 in regards to fee splitting and running and camping ,3-110 attorney's have to be competent in performing legal services
9) If an attorney hires a realtor or broker to do loan mods they have to be on salary...not per transaction
10) NOD Filed - Only an attorney can get an upfront fee
11)State Bar Association - Ethics Alerts...for more info
12) brokers not accepting upfront fees can be paid at the end of the transaction...some attorney's my differ with that opinion by instituting installment plans, but that is a risky proposition.
KNOWING THIS, STILL WANT TO DO LOAN MODS?
Per the OCC, 37% of loan mods defaulted within 3 months, 55% after 6 months and 58% after 8 months. Thus another reason for no upfront fee agreements and the crackdown on them. At the end of 2008 91.47 (92%) of all loans were current or performing.
STEP-BY-STEP WHAT WOULD I DO FOR A DISTRESSED CUSTOMER
1) Have a ready list of attorney's that are experienced with loan forensic issues, bankruptcy law, and tax laws. Have a list of CPA's and financial planners readily available for any fallout that may occur. Depending on the results of my first meeting with the customers, I would not take on a loan modification, short sale or deed in lieu of foreclosure without having the customers consult with those professionals first before I proceed.
2) Get copies of original loan documents- check for any loan potential loan fraud or misrepresentation for the loan in question. If you don't know how to check...stop...and don't go forward with the loan mod or short sale on your own. The advice yout give your clients could put them at risk if you don't know the ramifications.
3)Based on the documents you recieve there are several options:
A) Foreclosure
B) Short Sale
C) Deed in Lieu of Foreclosure
D) Loan Modifications
E) Possibly staying and renting after foreclosure
F) Refinancing
Ramifications of Choices:
Once A-E are introduced, a case is opened with the lender. Whatever information the borrower gives the lender at the point could be potentially used against the borrower at a later date by both the lender and other authorities. That is why any decision to proceed for any borrower whose lender could potentially have a case for misrepresentation needs to be backed up, in my opinion, by other professionals such as attorney's and accountants. Going into whatever transaction is deemed appropriate, everyone needs to be on the same page....up until the timing of the bankruptcy if necesary.
4) Implementing Obama's Modification and Refinancing Plan:
A) Get copies of original loan documents and accumulate all of the facts about the customer' situation.
B) Find out if the customer's loan is FNMA or Freddie Mac Owned or guaranteed
1) Have customers call their loan servicers with the phone number on their billing statements
2) go to makinghomeaffordable.gov...this can walk you through the whole process
http://www.fanniemae.com/loanlookup
http://www.freddiemac.com/mymortgage
C)If the loan is GSE related have the customer ask if their loan is eligible thru their servicer for the Home Affordable Refinance and ask for a rate quote. Most lenders should start rolling out the program around April 4th and enhancements will continue until May 2nd. Some lenders won't offer it.
D)After getting a rate quote from the servicer don't necesarily think that is the best deal, shop around. Remember, the program will take take time to impleemtn will every lender
E) If the loan is FNMA or Freddie Mac owned, serviced, or guaranteed it has a chance to be modified or refinanced under the Obama Plan. If the loan is not GSE related then as of now the only option is to do a loan modification with the current servicer
F) If the loan is GSE related, try for the refinance 1st and if it doesn't qualify consider the loan modification
G) Refinance issues to think about -
1) some lenders may not participate, it is a voluntary program
2) mortgage insurance issues can be a road block
3) 105% LTV is just the start....probably will be increased after initial implementation, most people in San Diego that bought in the since 2005 are far more upside down. Per NAR 43% of US Homebuyers in 2005 put no money down.
4)only good for owner-occupied (investors are bad?)
5) 36% DTI may be too low although the program does allow for exceptions
H) Loan Modification Plan
Goal is to get to a 31% piti debt ratio to prevent re-defaults:
1) reduce rate at 1% intervals until it reaches a low of 2%
2) if that doesn't work spread the payments out to a 40 year fixed
3) if that doesn't work reduce the principal
4) Lenders Come up with Net Present Value to see what is best for them(foreclosure, short sale, loan modification, refinancing, selling the note individually or in bulk, selling property in a bulk REO sale, auction). They will go with what they think limits their losses the most. Every lender is different and there is movement to have one formula to figure NPV. Most NPV's are figured by loss mitigation people that are out of the area and may not have the local expertise to come up with a legitimate NPV. Give them as much supporting info as you can that would help your case. They also will look to see if their has been any initial loan misrepresentation....if they think there was then theycould try to recoup losses in other ways.
Issues with this plan and other Modifications:
1) Still Voluntary with lenders
2) Delays the inevitable in most cases
3) Prohibits Freedom Of Movement - Less Transactions, bad for the economy. Any debt deferred by this plan is payable at a later time...in the form of a balloon payment or higher rates or payments after a certian amount of time.
4) Only good for owner-occupied
5) Moral Hazard....could put neighbors against each other
6) The 31% DTI level for the piti in California will be hard to reach....and if fully implemented for loans going forwarded could help drive down the real estate values further
7) Could make one lose his security clearance
I) If you don't feel comfortable send them to the Hope Now Alliance or Community Housing Works
Conclusion: Be good and focus on Real Estate or Loans...stay away from modifications!


WEBSITES
makinghomeaffordable.gov (loan refinance and modification eligibility)
www.fanniemae.com/loanlookup
www.freddiemac.com/mymortgage
www.efanniemae.com(loan and modification guidelines)
www.freddiemac.com
www.dre.ca.gov
http://www.dre.ca.gov/mlb_adv_fees_list.html (list of No Objection Letter companies)
www.995hope.org
www.chworks.org (Community Housing Works)
macplan.blogspot.com