Los Angeles Times – Five major banks continue to pursue foreclosures against borrowers seeking loan modifications and fail to provide a single point of contact, according to a survey by the California Reinvestment Coalition.

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Los Angeles Times – The streamlined mortgage modification program doesn’t require troubled borrowers to prove a hardship, but it won’t include principal reductions.

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Wells Fargo has joined Keep Your Home California’s Principal Reduction Program, which offers homeowners as much as $100,000 to reduce their mortgage principal and monthly payments.

Keep Your Home California is anticipating the bank’s participation will lead to many more homeowners applying for mortgage assistance and allow them to get the help they need.

Wells Fargo joins several other major banks, including Bank of America and Chase participating in the Principal Reduction Program.

Keep Your Home California has made some big changes to the Principal Reduction Program, all in an effort to attract and make it easier for homeowners and mortgage servicers.

Most notably, the program eliminated the dollar-for-dollar match requirement by servicers last spring, taking on 100 percent of the funding. So, Keep Your Home California will commit as much as $100,000 per homeowner, handle the application and documentation, and oversee the entire process.

The changes were made with the goal of helping more homeowners remain in their homes and maintain an affordable, sustainable mortgage payment for years to come.

Keep Your Home California has set aside about $772 million for the Principal Reduction Program, enough to help almost 9,000 homeowners in the state. $500 million is still available so homeowners are encouraged to apply while plenty of funding is still available.

Wells Fargo, after enrolling in Principal Reduction, participates in all four Keep Your Home California programs. The other three programs are the Mortgage Reinstatement Assistance, the Unemployment Mortgage Assistance, and the Transition Assistance Program.

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New York Times – Homeowners wary of being taken in by bogus “loan modification specialists” should not assume that a law office is the most reliable way to work with their lender.  Consumer advocates say a growing number of fraudulent modification services involve lawyers, or people who say they are lawyers.

Making sense of the story

• Increasingly, lawyers are lending “their names, their offices, their credentials” to fraudulent operations that vaunt superior skills in obtaining loan modifications, according to a senior counselor at the Lawyers’ Committee for Civil Rights Under Law in Washington.

• While Federal Trade Commission rules generally prohibit demanding upfront fees for mortgage relief services, there is a narrow exception for lawyers.

• Under the rules, a lawyer may charge clients in advance for assistance if the service is part of their general practice of law, and not outside of that practice.

• Certainly, many lawyers provide legitimate foreclosure-avoidance services, but borrowers should know that when going to a lawyer whose sole business is loan modifications, that is a red flag.

• As more homeowners become aware of these tactics, some operations are changing their practices.  Instead of selling loan modification services, they are advertising so-called loan workouts and forensic loan audits. Some are even posing as nonprofit groups.

• The Homeownership Preservation Foundation and the Lawyers’ Committee both belong to a coalition of public and private agencies that maintain a national database of loan-modification complaints.  Since March 2010, some 28,000 homeowners have reported potential fraud.  Their reported monetary losses total around $66 million.

• Counseling services offered by the Dept. of Housing and Urban Development are free of charge.  Visit http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm to find a HUD-approved counselor.

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New York Times – Homeowners having trouble paying their mortgage are often required to write a hardship letter when applying for a loan modification.  Such a letter is a requirement for modification applications under the government’s Making Home Affordable program.

Making sense of the story

• A hardship letter is not the basis for modification approval – that depends on the borrower’s financials and the intricacies of the various government and in-house lender programs.  The purpose of the hardship letter is to explain upfront why borrowers missed payments, and what they propose as a solution.

• Some housing experts recommend that homeowners write short letters, using the philosophy that “less is more.”  The lenders’ loss mitigators, faced with mountains of modification requests, are unlikely to spend time reading more than the first few lines of each letter.  Also, there is the risk that borrowers who go on at length could unknowingly trip themselves up with unnecessary details that raise red flags for a mitigator.

• The hardship letter should open with a succinct explanation of why the borrower stopped paying the mortgage.  The letter should cite a specific hardship, like a lost job, illness, or reduced income.

• Next, the letter should briefly cite any steps the borrower took to avoid defaulting on their loan, like cutting household expenses or tapping in to savings.

• If the borrower’s financial situation has since improved, or is likely to, borrowers should mention that as evidence that their hardship was temporary and won’t hamper their ability to make payments on a modified loan.

• Finally, the letter should state exactly what borrowers are applying for.  Is the proposed solution a lower interest rate, for example, or a principal reduction?

• Borrowers who are underwater – those who owe more on their mortgage than their property is worth – may ask their lender to consider a short sale, in which the house is sold to another buyer for less than the amount owed.

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In October of 2009, pursuant to SB 94, it became illegal for any person, including lawyers, real estate licensees, corporations, companies, partnerships, or any other licensed or unlicensed person or party, to demand, charge, or collect any advance, up-front, or retainer fee, or any other type of prepayment compensation for loan modification work or services, or any other form of mortgage loan forbearance, involving 1 to 4 residential units. The provisions of Senate Bill 94 were due to sunset on Jan. 1, 2013.

However, with the recent signing of AB 1950, the sunset provisions of Senate Bill 94 will be repealed, making the ban on the collection of advance fees for loan modification and forbearance services permanent.

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Late last week, the Senate Finance Committee crafted and sent to the full Senate a package that would extend the mortgage relief provision for an additional year, through Dec. 31, 2013.

The Senate was unable to act on the bill before adjourning for its August break and the party conventions. The Senate reconvenes Sept. 10. Chairman Baucus (D-MT) had hoped to finish this package before the election in order to provide certainty about the extension (or not) of more than 50 provisions. Nonetheless, it is not known if the package also would be considered in the House before the election.

In addition to the mortgage cancellation relief provision, the package also includes a relief provision to limit the impact of the Alternative Minimum Tax (AMT) in 2012 and 2013. The 15-year cost recovery for leasehold improvements is renewed (it had expired Dec. 31, 2011) and extended through Dec. 31, 2013. The provision that permits the costs associated with brownfields environmental cleanup was NOT included in this extender legislation.

Wall Street Journal – According to a study by TransUnion, borrowers who received mortgage modifications after missing payments are more reliable borrowers in the future – for all types of loans, including credit cards and auto loans – than those who did not receive a modification.

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San Francisco Chronicle – U.S. regulators released rules for mortgage servicers that are designed to help members of the military get information needed to sell their homes or modify loans when they are forced to relocate.

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The Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), the Consumer Financial Protection Bureau (CFPB), and the U.S. Dept. of the Treasury (Treasury) has issued a fraud alert to the Armed Services community to combat scams targeted at homeowners seeking to apply for mortgage assistance through the Home Affordable Modification Program (HAMP) and other federal programs. A number of these scams are specifically targeting members of the Armed Services community.

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