Make Sure You Qualify for a Mortgage Modification Before You Try to Get One

Like us, many people are stuck in the middle of a mortgage modification mess. The Obama Administration's program to help financially stressed homeowners reduce their mortgage payments is a dud. I am still in utter disbelief that, whether your mortgage is with Fannie Mae and Freddie Mac or if you have a FHA or conventional loan, can make a difference whether you are approved for a loan modification or not.

The House GOP wants to end "failed and ineffective" housing programs, such as the Home Affordable Modification Program (HAMP), the Neighborhood Stabilization Program, the Federal Housing Administration Refinance Programs and the Emergency Homeowner Relief Fund.

"In an era of record-breaking deficits, it's time to pull the plug on these programs that are actually doing more harm than good for struggling homeowners," Rep. Spencer Bachus, an Alabama Republican who chairs the House Financial Services Committee, said in a statement." 

While these programs are not gone yet, I think Bachus is completely correct. Just over a third of households enrolled in a trial loan modification through the Home Affordable Modification Program (HAMP) have been given a permanent modification.  This was as of November 2010 and until June 2010, banks were still enrolling homeowners in trial modifications without verifying whether they qualified or not. So, you may have been given false hope that you qualify only to find out months later that you were turned down.

Here are seven main points of supposedly what you need to qualify for a loan modification:

1. Your loan must be less than $729,750.
2. You must live in the property. (Investment properties are not allowed. However, I was able to get a mortgage modification on my investment property.) Odd very odd. Sounds fishy to me.
3. You will have to fully document your income. You will have to provide your most recent tax returns and your two most current pay stubs. Have your bank statements ready while your at it too.
4. You must have received your original mortgage before January 1, 2009.
5. You will have to sign an affidavit financial hardship.
6. The total payment on your mortgage including principal, interest, taxes, insurance and homeowners association dues (HOAs) must exceed 31% of your current gross income.
7. If your total household debt, which includes loans, credit cards, and alimony payments, total more tan 55% of your income, you will have to agree to sign up for financial counseling.   

I had originally found all of those qualifications to be true (with the exception of the investment property portion), when Bank of America granted us a loan mod on our rental property. I thought for sure we were going to receive the same deal on our primary residence. Boy, was I wrong.

If you are planning to try and get financial help and apply for a mortgage modification with your bank, be sure that you are ready for the worst. Here is what you should be prepared for:

• Your credit score will drop. Even if you are offered a trial modification, the lesser amount that you are now paying on the mortgage during the trial will be reporting to the credit bureaus.
• It may take three months or more (In our case fourteen months and counting) to know if you were approved or not. HAMP's original goal was to give homeowners a three month trial period. However, the more people I talk to more I keep hearing six months, a year or even two years, before getting an answer. Hold on this could be a bumpy ride.
• Making timely payments during the trial does not guarantee you will receive a permanent modification. See the 7 points discussed above. I am now suggesting that you know the bank's criteria for eligibility before you attempt to get a modification.
• Be ready. If you are turned down for the permanent modification, the bank will make due the difference you haven't been paying between the normal payment and your trial period payment for every month you were not making a regular payment. If you cannot pay the back payments, which could be 12 or even 24 months worth, you will most likely be facing foreclosure. If you are going to attempt a modification you need to put aside the difference in savings or will most likely lose your home. 

On one hand I say the loan modification program is great, but only if all loan mods were like the one we received on our rental property. It was exactly what the doctor ordered. An interest rate of 2% for five years, followed by an 1% increase until the rate reaches the prevailing rate, which at the time was 4%, for the life of the loan. If we received the same deal on our primary residence I would be a full supporter of the program. I do know the program has helped hundred's of thousands of homeowners and maybe will still help more by its expiration in 2012, if not sooner, but it still gets be going that the guidelines can be modified by who the investor is or by what type of loan program you have. The program doesn't necessarily need to be bust, but something need to be done to give everyone a fair chance. especially, for those who truly want to save their home.

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How Bad Does Bankuptcy Affect Your Credit Score?

Talk of bankruptcy has reared its ugly head again today between my wife and I. We have been doing so well over the past year and have paid off almost $30,000 of our debt so far.

All of our bills are paid on time, with the exception of our primary mortgage and our business accounts. We have been working on a loan modification for our primary mortgage and the business accounts are looking like they will be going to court. We refuse to let our house go and will ultimately default on all our other accounts if need be to prevent from losing our house. As for the business accounts, any judgement will put us over the edge and either circumstance may require us to file bankruptcy.

We did look into bankruptcy last year, but decided against it because we wanted to do the right thing. We borrowed against the cards, we took the mortgages out for our homes, we owe the money. But, why not just file bankruptcy?

Bankruptcy should only be used as last resort. Bankruptcy will ruin your credit for 10 years. Not that our credit isn't in rocky shape right now, but if we can get these last couple of things worked out it will improve quickly. In today's economy it will be highly unlikely to get any type of credit. Not that we have interest in getting any right now, but in the end it all comes down to repaying what we owe and keeping our character intact.

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Who Can I Contact to Dispute Items on My Credit Report?

There are three major credit bureaus to contact for your credit report. The three are:

• Trans Union Corp., Consumer Disclosure Center, P.O, box 390, Springfield, PA 19064 (800-916-8800 or http://www.transunion.com/)
• Equifax Information Service Center, P.O. Box 740256, Atlanta, GA 30374 (800-686-1111 or http://www.equifax.com/)
• Experian Consumer Assistance (formerly known as TRW), P.O. Box 2104, Allen, TX 75013 (800-397-3742 or http://www.experian.com/)  

You can also go to http://www.annualcreditreport.com/ to get a free a copy once year from each of the three bureaus. I check my reports every 4 months using this service. it's east to use and a great way to keep an eye on your credit.

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Don't Call Me Don't Call Me Any Anytime

Day 277 of my Financial Freedom Countdown

When I was behind on all my payments the calls from collectors or credit card companies were very stressful. Not only stressful, but I was always worried we would get a call when we had friends or family over at the house.

We would either turn the ringer off or would put the phone on silent mode and turn off the answering machine, when we had company over. Since we put our credit cards on balance liquidation programs and have worked on getting loan modifications on our properties the collection calls have come to end. Until a few days ago.

Friday we received a call from ARA , which I think stands for Asset Recovery Association. I have no idea what they would be calling about. The message just said it was important I call them. Just when things were really beginning to roll, now there is something else. I guess I really need to check my credit report to make sure there isn't anything fishy going on. Or call them and ask what gives.

Has anyone received calls from ARA?

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What if You Only Had 24 Hours to Live?

I have let my massive six figures of debt keep me up at night more than once. Many times more than just keeping me up, but actual panic attacks over worry and thinking, "How am I going to pay off all this debt." Well, I have done it once before and I am diligently working on doing it again. But does worrying about debt and credit scores really matter in the end?

This past Sunday I was reading an article by Lee Eisenberg entitled "Your Money or Your Life?" and it sited a series of questions that financial planner George Kinder asks his clients. He has all of his new clients answer three hypothetical scenarios.
1. Imagine you have more money than you ever dreamed of. What would you buy? Where would you travel? At this point, Kinder says, most people go crazy: Golf memberships! A condo in Vail! A 45-foot cabin cruiser!
2. Now imagine that your doctor diagnoses a rare disease; you will die within 10 years. Suddenly, we're thinking harder about what's really important. Plenty of material goodies will wind up on the list, but it's clear that with tighter time horizon, we're far more discerning about what really counts.
3. Now the doctor says that you have only 24 hours to live. The question isn't, "What would you like to do or buy between now and tomorrow?" It's this: "What did you not get to do in life, who did you not get to be?"

All of us would answer these questions differently and I am pretty sure having less debt or how high your credit score would not be a concern. So how would you answer these questions? Would you have exercised your creativity more? Given more back to the community, church, the planet. Fix a broken relationship? I think the majority of the answers would not even require money or taking on debt.  For myself I think I need to worry less about debt and need to get back to focusing on self worth rather than net worth for a while. After all the best things in life are free.

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How Do I Know Someone is Truly a Loan Modification Specialist?

Chances are you see commercials all day long with attorney's offering to do loan modifications for troubled homeowners. It seems I see or hear offers all the time that will help you save your home. I even get solicitations in the mail myself. So many ways get help, so little time.

It's funny but some of the attorneys I see advertising to help with loan modifications were strictly personal injury attorneys just a few years ago. People are cashing in on all the homeowners down on their luck these days.

A couple of friends of mine went to an attorney to get help with the modification on their mortgage and paid thousands of dollars to be ultimately be turned down by the bank. Now they are trying again on their own.

I have even seen an attorney go as far to say, "You don't need an attorney to get a loan modification. Come in and see us for your "free" packet." Foreclosure rescue specialists are even calling people to offer them assistance, but who do you trust? How do you know who's legitimate?

First legitimate foreclosure consultants don't call you; you call them. When the sharks smell blood in the water, they're ready to attack. Scam artists can easily find if your home is up for foreclosure by going through your county records for notices of default. The first sign of trouble is they offer to work with your bank on your behalf as soon as you pay the service fee, which is paid upfront. The moment you do that your money is gone and you'll never hear from them again. Another nasty scheme is to have you sign a note that will bring your existing mortgage current, but in reality you are signing the title over to a con artist.

So who can you trust when facing foreclosure? Start by contacting the National Foundation for Consumer Credit Counseling at 866-687-6322. They have housing counselors that can help you. You can also visit their Homeowner Crisis Resource Center at http://www.housinghelpnow.org/ and at the Federal Trade Commission site www.ftc.gov/bcp/edu/pubs/consumer/credit/cre42.shtm. If you have been a victim of foreclosure fraud, contact the Federal Trade commission at www.ftc.gov or call 877-FTC-HELP and your state attorney generals office.

I would say attorney's are professionals you can go to as a last resort for loan mod assistance. I truly would try working with your bank yourself first, but you need to do this the minute you are sixty days late. Don't wait until it's too late and the bank is getting ready to start the foreclosure process. If you really think an attorney is the way to go then definitely use someone who is knowledgeable in the matter. Although losing your home might fell like a personal injury that type of attorney probably isn't your best option.

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Scripture of the Day 07.25.10

Lending Scripture

Nehemiah 5:1-13
Now there was a great outcry of the people and of their wives against Jewish brothers. For there were those who said, "We, our sons and our daughters are many; therefore let us get grain that we may eat and live." There are others who said, "We are mortgaging our fields, our vineyards and our houses that we might grain because of famine." Also there were those who said, "We have borrowed money for the king's tax on our fields and our vineyards. Now our flesh is like the flesh of our brothers, our children like their children. Yet behold, we are forcing our sons and our daughters to be slaves, and some of our daughters are forced into bondage already, and we are helpless because our fields and vineyards belong to others." Then I was very angry when I had heard their outcry and these words. I consulted with myself and contended with the nobles and the rulers and said to them, "You are exacting usury, each from his brother!" Therefore, I held a great assembly against them. I said to them, "We according to our ability have redeemed our Jewish brothers who were sold to the nations; now would you even sell your brothers that they may be sold to us?" Then they were silent and could not find a word to say. Again I said, "The thing which you are doing is not good; should you not walk in fear of our God because of the reproach of the nations, our enemies?" And likewise I, my brothers and my servants are lending them money and grain. Please, let us leave off this usury. Please, give back to them this very day their fields, their vineyards, their olive groves and their houses, also the hundredth part of the money and of the grain, the new wine and the oil that you are exacting from them." Then they said, "We will give it back and will require nothing from them; we will do exactly as you say." So I called the priests and took an oath from them that they would do according to this promise. I also shook, out the front of my garment and said, "Thus may God shake out every man from his house and from his possessions who does not fulfill this promise; even thus may he be shaken out and emptied." And all the assembly said, "Amen!" And they praised the LORD. Then the people did according to this promise.

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Scripture of the Day 07.24.10

Lending Scripture

Luke 6:35
But love your enemies, and do good, and lend, expecting nothing in return; and your reward will be great, and you will be sons of the Most High; for He Himself is kind to ungrateful and evil men.

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Scripture of the Day 07.23.10

Lending Scripture

Matthew 5:42
Give to him who asks of you, and do not turn away from him who wants to borrow from you.

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Are Credit Checks Hurting Your Job Search?

From CNNMoney.com: Job seekers' latest hurdle: Credit checks

An increasing number of employers are using credit checks to screen potential job applicants. So missed payments on your mortgage, car or credit card could keep you from getting hired.

[A] credit check gives employers details about accounts in collection, debt levels, bankruptcies and other problems that would cast doubt on someones ability to handle responsibility.

But consumer advocates and some job seekers say that candidates are being unfairly judged by the circumstances of their private lives.

This is tough. All my years of loan approval experience are based on what is known as the 5 "C's" of credit and one of the five is character. People face hard times all the time, but if you aren't making every effort to pay back your debt I'd say you have a "character" flaw. I am in the middle of a financial crisis myself and I am working on paying back every penny I owe.

The hard part is not hiring someone because of their credit is only adding to our never ending economic turmoil. Maybe we need to give someone a break for a change.

What do you think? Should credit checks be banned in all states like they currently are in Hawaii, Oregon, and Washington?

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Scripture of the Day 07.22.10

Lending Scripture

Proverbs 28:8
He who increases his wealth by interest and usury gathers it for him who is gracious to the poor.

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Scripture of the Day 07.20.10

Lending Scripture

Psalm 112:5
It is well with the man who is gracious and lends, he will maintain his cause in judgement.

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Scripture of the Day 07.20.10

Lending Scripture

Psalm 37:26
All day long he is gracious and lends, and his descendants are a blessing.

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Keep Your Guard Up When it Comes to Debt Collectors

From CNNMoney: Protect yourself from debt collectors

Complaints of harassment by debt collectors increased by 50% in 2009, according to the Federal Trade Commission.

While calls to your home or workplace are not illegal, foul language is. Complaints of debt collectors using abusive or foul language surged 35% last year.

If you are being harassed, you are protected under the Fair Debt Collection Practices Act. Illegal collection tactics include everything from threatening to garnish wages or press fraud charges to contacting your family or neighbors to discuss the debt. 

I forgot what it's like to have our phone ringing off the hook with collectors calling constantly. Ever since we started our balance liquidation programs and have begun getting loan modifications on our home loans, the calls have come to a halt. I haven't had anyone get out of line with me, but the one after another calls are ridiculous.

One thing I find interesting in this article is debt collectors can now contact you on social networks like Facebook. But they cannot friend you without telling you that they are a debt collector. Remember you have rights.

Have you ever been contacted by a debt collector? What was your experience?

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Scripture of the Day 07.19.10

Lending Scripture

Psalm 15:5
He does not put out his money at interest, nor does he take a bribe against the innocent. He who does these things will never be shaken.

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Scripture of the Day 07.18.10

Lending Scripture

Proverbs 3:27-28
Do not withhold good from those to whom it is due, when it is in your power to do it. Do not say to your neighbor, "Go, and come back, and tomorrow I will give it," when you have it with you.

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Scripture of the Day 07.17.10

Lending Scripture

Deuteronomy 23:19-20
You shall not charge interest to your countrymen: interest on money, food, or anything that may be loaned at interest. You may charge interest to a foreigner, but to your countrymen you shall not charge interest, so that the Lord your God may bless you in all that you undertake in the land which you are about to enter to possess.

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Scripture of the Day 07.16.10

Lending Scripture

Deuteronomy 24:10
When you make your neighbor a loan of any sort, you shall not enter his house to take his pledge.

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So You Think You Are Ready to Buy a House: 4 Must Do's

I was reminiscing today about how easy it seemed to buy a home just a few short years ago. Just eight years ago I was a loan officer and I remember when the guidelines began to loosen up and how people just a few months prior would have never qualified for a mortgage with their financial situation, but did. It was an easiness that was just too easy. An easiness that should never have happened.

Although the current economic situation is certainly not helping the housing market these days, I think things have reached a point necessary to put things right again in the financial world. Do I dare say this, but I am going to...things should be a little more strict.

Now I am not saying that I am a Saint by any means. I fell into the trap of easy lending myself, but had I followed what I believed when this economic meltdown began, I probably wouldn't be in the middle of my own financial crisis.

Here are a few guidelines I suggest you follow when buying a home:

1. Do not buy a home until you have an emergency fund in place and are debt free aside from your new mortgage.
2. It is best to only have a 15 year mortgage.
3. Put down 20 percent to avoid the cost of PMI (Private Mortgage Insurance).
4. Your mortgage payment should never exceed 25 percent of your take home pay. Lenders  will generally go up to 31 percent, but I say go a little lower. It is the best way to stay out of trouble. 

Even if your able to take advantage of the current low interest rates don't push your finances to the limit. Having a buffer is best. You'll thank me later for it.

If you are newly married there really is no reason for jumping into purchasing a home either. My first wife and I bought I home shortly after we were engaged and moved in the home before we were married. My second wife and got engaged the night we moved in our first home together. I guarantee it is worth the wait. Spend a year or so together first building equity with each other before you try and build equity in a home.

If you think buying a home with your boyfriend or girlfriend is any better think again. Don't buy a home with someone you are not married to. If the relationship goes South it can ruin you financially, legally, and spiritually. You would be better off buying the home on your own.

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Scripture of the Day 07.15.10

Lending Scripture

Deuteronomy 15:8
But you shall freely open your hand to him, and shall generously lend him sufficient for his need in whatever he lacks.

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