Recently, the OCC released their mortgage metrics report covering the 3rd quarter of 2011.

I want to cover some loan modification performance numbers and unfortunately it shows that loan modification is just putting off the inevitable for some people.

What is staggering about this chart (click for a larger image) is that 49.5% of mortgages modified in 2008-2011 are current. The rest of them are delinquent (re-default) or those borrowers have completed a short sale, deed-in-lieu or foreclosure.

More recent loan modifications are doing better with 74% of modified mortgages current in 2011 but unfortunately for a lot of loan modifications the homeowners are not able to keep their home.

This points to several issues with loan modifications and clearly the larger the payment reduction, the higher the rate of people that are able to keep on making payments. It also points out to me that the recession clearly didn’t help things and that even people that were able to afford lower payment ended up having to let go of their house.

Don’t get me wrong, a loan modification is still a valuable tool and option for borrowers but it may be a good idea to look at the overall financial picture and goals to make decision to sell the property instead of holding on to a negative equity asset.

Below you will find short sale package information for the “Big 3″ banks (Bank of America, JPMorgan Chase, Wells Fargo)

The websites for these banks will have information on them about HAMP (loan modification), HAFA (short sale), deed-in-lieu (really a faster version of foreclosure) and maybe other programs that are bank specific that are available.

Keep in mind that the bank is trying to collect on a debt and they will will use anything they can collect from you – including information as supplied through loan modification packages, etc – for that purpose.

Wells Fargo

Wells Fargo Homeowner Assistance website

Wells Fargo financial worksheet (pdf)

Chase

JPMorgan Chase homeowner assistance website

JPMorgan Chase short sale package (pdf)

EMC short sale package 

 Bank of America

Bank of America homeowner assistance website

Bank of America short sale package

I hope that these short sale package links are useful to somebody.

SB 458 extends the protections of SB 931 (2010) that have been in effect since Jan 1 2011, to ensure that any lender that agrees to a short sale for a residential 1 to 4 property, must accept the agreed upon short sale payment as payment in full of the outstanding balance of all loans. This applies to 2nd mortgage liens, 3rd mortgage liens, etc. (a.k.a. junior lien holders; e.g. home equity line of credit – HELOC).

Under previous law (SB 931 of 2010), a first mortgage holder could accept an agreed-upon short sale payment as full payment for the outstanding balance of the loan, but unfortunately, the rule did not apply to junior lien holders. SB 458 extends the protections of SB 931 to junior liens.

Practically, for short sale sellers SB 458 does means that a short sale junior lien holder cannot require additional compensation (think cash contribution or promissory as note) as part of the short sale approval. SB 458 does not exclude voluntary monetary contributions and junior lender is permitted under law to negotiate for a contribution from somebody other than the borrower, such as other lenders, agents, relatives, buyers, etc.

But SB 458 does make sure that after close of escrow of the short sale there is no more possibility that the lender will come after the borrower/seller so in effect the lien and (personal) liability will be released by all lenders involved in a short sale. This is similar to a HAFA short sale with the difference that HAFA did specifically include a seller relocation/moving credit.

Exceptions to SB 458 include a lender seeking damages for a borrower’s fraud or waste; a borrower that is a corporation, LLC, limited partnership, or political subdivision of the state; a lien secured by a bond as specified; a public utility lien; and additional rules apply if a note is cross-collateralized by more than one property.

Note to investors: as long as the property you’re holding is a residential 1 to 4 unit property, SB 458 will apply for junior liens (SB 931 already applies for 1st liens).  It doesn’t mean however, that you won’t have any tax liability for choosing a short sale. Just keep in mind that foreclosure most likely will result in a higher tax liability.

For any seller reading this post: consult with your attorney on how SB 458 will affect your short sale or decision to short sell your home.

Below is the link to the latest and greatest info courtesy of ForeclosureRadar.

Palo Alto foreclosures July 13 2011

I got the following email today about seller participation from a bank that shall remain nameless. I’ve gotten similar emails before from other lenders.

-Seller Participation: ***Please Read***
- The investor for this loan requires that we contact the mortgagor to request a participation in the loss on this short sale. They have proposed an affordable option below. As the authorized third party, I will allow you the first opportunity to discuss this with the mortgagor. If the mortgagor declines on the request for participation please be advised an attempt will be made to contact the mortgagor directly to confirm their response.

Participation requested: $3,000 one time cash payment or a $6,000 Promissory note (10 years, zero interest). Please let me know if the Seller: a) Agrees to one of the choices b) Counters

Some points I want to make:

• The above is to get more money out of the seller regardless of hardship.
• Notice how this is presented as a “affordable option”. Sorry, but nothing is affordable when somebody is financially distressed.
• The seed is planted in the agent’s and seller’s mind that they have to contribute money (see option a and b)
• What this shows is that you can invest (in securitized mortgages in this case) and when the investment doesn’t turn out as expected you can go ask somebody to participate in your loss. Good luck buying for example Apple stock and then asking Steve Jobs to participate in your loss when the stock price goes down.

What to do when I get “requests” like this. Well, I push back hard and I go back to the fundamentals of the law.

In this case the loan is of the ‘purchase money’ kind so there is no liability after foreclosure. In fact, because of SB 931 in California there is no deficiency possible with a short sale or foreclosure on a 1st loan.

Because of SB 931 – in California – the lender cannot require seller participation (cash contribution or promissory note) as part of the short sale:

Written consent of the holder of the first deed of trust or first
mortgage to that sale shall obligate that holder to accept the sale proceeds as full payment and to fully discharge the remaining amount
of the indebtedness on the first deed of trust or first mortgage.

That’s right folks: the sales proceeds are full payment. Given the fact that a short sale will net them way more money that letting a property go to foreclosure, guess what the lender will do when you say no to seller participation? They will do the short sale and take the proceeds from the sale.

The thing to remember is that banks will do anything to collect money from the borrower, including lying. They will even try to collect on accounts that already have been settled and released of liability as a client recently found out after a short sale or try to shake money out of people on un-collectable accounts that have been wiped out in foreclosure. Also, they don’t care about state laws too much because if you can talk somebody into giving you money most of the time, then what motivation do they have?

Sellers, work with a short sale agent that knowledgable that has your best interests at heart and that can minimize or eliminate the personal liability after short sale.

When a bank comes and asks for seller participation or seller contribution, have your wits about you because if you don’t it will cost you, literally.

Loan Modification with Lee Honish from Gordon Lake on Vimeo.

What is a REST Report?

The REST Report is generated using the same loan disposition software used by lenders to analyze the mortgages they hold.
It allows homeowners to know with certainty, whether they qualify for one of the following loan modifications: HAMP, STEP, FLEX or CAP.

The other benefit is that  it allows homeowners to know – before they apply – what the terms of that modification would be. It saves time, money, stress.

How is a REST Report generated?

REST runs the most up to date NPV analytics, as required by the United States Department of Treasury, and is built on the same platform your lender uses to determine your eligibility.

Take a look at a REST report right here: Sample REST Report

Call me today to order your REST Report so you can stay in your home.

So if you have purchase money loans, i.e. the loans you got to buy your house with, don’t fall into the fear trap that the bank will set as far as deficiency judgments. They will have no recourse if they foreclose, so do fight for that deficiency language free short sale approval letter.

California deficiency judgement chart

* If a senior lienholder forecloses on the property for this type of loan, the “wiped out” junior lienholder who no longer has a secured note may not sue on this promissory note.

Note: chart courtesy of car.org

The below report shows the foreclosure activity for all residential type properties as of today Dec 18 2010 in Palo Alto. Residential properties include: single family homes, town homes, condos, 2 to 4 unit properties (duplex, triplex, quad plex), 5 or unit properties.

Palo Alto foreclosure map report

Palo Alto foreclosure list report

The report distinguishes between pre-foreclosure and auction type properties. The distinction lies in how close said property is to the trustee sale date.

Contact me for more details on individual properties and/or your investment needs.

Related Blogs

• Related Blogs on Palo Alto foreclosure report

The gist of SB 931 is the following: the lender in 1st position can no longer make you liable for the deficiency balance of the loan (purchase money or refinance) of a residential 1 to 4 unit property.

This bill is really nothing earth shattering and it just pours into law what was already common practice by banks. Considering that the vast majority of short sales are non-judicial (aka trustee sale) and the fact that Calfornia is a one action state as far as remedies to foreclosure made that there wasn’t a problem with banks wanting to pursue the borrowers of 1st mortgages for the deficiency.

This law does not apply to 2nd loans, whether purchase money or refi.

Overall SB 931 is underwhelming but I guess any step forward is a good one.

Related Blogs

• Related Blogs on california
• A California Bankruptcy – Transterrestrial Musings
• Brand Identity Case Study

• Related Blogs on deficiency
• Study suggests vitamin D deficiency can be the cause of muscle …

• Related Blogs on deficiency balance
• Help! The Repo Man Is Coming
• Dallas Design Agency