I.          Loan Modifications:  The New Scam On America

In the January 20, 2012 issue of the Wall Street Journal’s Market Watch, Lew Sichelman shared a few of the many letters he received from homeowners detailing their nightmarish experiences in trying – unsuccessfully – to modify their mortgages.  Take a look at the stories and know that they are being repeated thousands of time a day all over the country.

Those of you familiar with this blog know that I have written posts about loan modification before.  My take on the process has been quite cynical because of what I’ve seen in my bankruptcy practice.

Apparently, the problems I’ve seen in the Central District of California are mirrored throughout the nation.  
Continue Reading Loan Modification Horror Stories; Corruption On High

In my last post I focused on housing because I think it’s the most important factor in the current mess.  This post discusses the programs set up to address the mortgage meltdown.  The feds also view housing as the linchpin.

I.          HAMP, HAUP, HAFA, HARP

These stand for “Home Affordable Modification Program”, “Home Affordable Unemployment Program”, “Home Affordable Foreclosure Alternatives Program”, and “Home Affordable Refinance Program”.

            A.        HAMP

Freddie Mac states:

HAMP is a loan modification program designed to reduce delinquent and at-risk borrowers’ monthly mortgage payments.  HAMP is effective for mortgages originated on or prior to January 1, 2009, and will expire on December 31, 2012.

Contractually the borrower agrees to repay the loan with interest according to the contract’s terms.  In modifying the loan, what is the borrower trying to do?  Some combination of:  lower the balance, lower the monthly payments, lower the interest rate.  The common theme:  the borrower wants free money. 

If a bank gives away free money it dies.  For example, if a bank has 100,000 mortgages and lowers the principal balances by $10,000, it loses one billion dollars.  If it lowers the payments by $500 each, it loses fifty million dollars a month.  The $500 figure is the Treasury Department’s standard HAMP monthly mortgage reduction.

Banks have an incentive to modify mortgages:

Servicers will receive $1,000-$1,500 for each eligible modification they establish, and a “Pay for Success” incentive of up to $1,000 each year for three years as long as the borrower does not become 90-days or more delinquent.

But this puny incentive won’t coax a bank into giving a borrower $10,000, or $500 per month, in free money. 
Continue Reading Home Mortgage Modification And Bankruptcy – Part II

There are many factors that must be considered when choosing how to deal with mortgage challenges.  A few examples presented as questions can help illustrate some of the many things you need to consider:  Are your difficulties due to a temporary employment setback that has been resolved?  Can you make all future mortgage payments?  Based