1. How People Got in Trouble With their Loans.

If your in need of modifying your mortgage loan, you may have gotten here because of one of more of the following problems:

• The loan has adjusted and you can’t afford to make the payments.
• Your income has dropped and you don’t have enough money to pay your living expenses and your mortgage loan, too.
• You got into a loan and the payments were not what you thought they were going to be based on what your broker told you.
• You were told by your real estate broker that we can get you into this loan now; but don’t worry, we’ll refinance later when property values go up.

Bankruptcy of course, is an option for you. However, it may not be the only option available to you, and it may not be the best option. It may not necessary the best or first solution you should seek. The problem with adjustable rate mortgages that were made on stated income and little or no money down is that they were financial ticking timebombs, waiting to go off. As a Bankruptcy Lawyer, I can’t tell you how many people got in on these loans because they were told, “Don’t worry about the adjustable rate, when your house goes up in value in a couple of years, we’ll just refinance you into a fixed rate conventional loan.” It was one of the great lies of all time, right up there with “I’m from the government and I’m here to help.” When the cost of gas, food and everything else went up, and the loan rates started adjusting, the financial ship officially hit the iceberg and started sinking.

WHY MORTGAGE MODIFICATION MAY BE THE BEST SOLUTION

The problem with the approach of the mortgage lending industry is that it didn’t consider what was in the best interests of the customer at the present time, or the long term consequences to the consumer. It only considered making a commission for the broker, and making a commission down the road when the borrower refinanced, but not the long term financial impact on the consumer under the actual terms of the loan or considering the history of the real estate market. When Hurricane Katrina hit, gas prices started going up, and the real estate market started going down, the financial sunami hit. Not only were borrowers unable to refinance their houses because they had no equity, there were no buyers because the houses were worth less than what was owed. So the brokers who acted out of greed really screwed everyone in the long run, because now the real estate industry has been devastated by the inability to sell existing homes or inventory. Everyone connected in the Real Estate and Financial Services industry is hurting because its hard to give away property. In fact, builders are being hammered and are filing Chapter 11 because they are competing against the banks selling their own REOs. Its simply crazy. The good news however, is that the bank really doesn’t wan’t your house. If they foreclose on your house, they’ll never be able to sell it for the value of the loan, and as the property owner, they’ll have to pay all the ongoing maintenance costs such as taxes, insurance, upkeep until they can unload it at a loss.

THE RIGHT SOLUTION FOR YOU

Instead of filing bankruptcy, your other option, and possibly a better solution to your problem is to a do a loan modification with your lender, the Great Bargain Mortgage Company. Often times the best solution for everyone is to come to an agreement to keep you in the house and keep paying on the loan. A loan modification keeps you in the house and off the REO market and gets the bank what they really want: the monthly payments. It’s a good deal for the banks because they avoid the cost of foreclosing on the house, which includes trustee’s fees and attorney’s fees. It also keeps it off their books as a non-performing asset, which means that they can lend more money to other borrowers because they don’t have to increase their reserve for bad loans. Our team of experts will negotiate a loan modification with your lender to keep you in your house with affordable payments.

We review the circumstances under which you got into the loan in the first place to determine whether your rights may have been violated under the Truth in Lending Act, RESPA, the Real Estate Settlement Procedures Act, Reg Z, and other State and Federal Law. We’ll make a comprehensive review of your financial status to determine where you are now. The goal is to convince the lender that they should voluntarily renegotiate the loan in order to avoid foreclosure, a lawsuit, and to do what’s in their best interest, as well as yours. The goal of a loan modification is to reduce payments, principle balance, interest, and defer or forgive past due payments.

We can’t guarantee success, because not all lenders are willing to work with you, and some are more hardheaded than others. But given the recent moratorium or postponement of foreclosure sales by banks like Chase, the climate is changing and you now have a great opportunity to stay in your house at a price you can afford.

GLOBAL DEBT SETTLEMENT

While doing a loan modification with your lender it may not solve all your financial problems based on your income, expenses, and other monthly payments on your credit cards or medical bills. As part of resolving your financial situation, we will negotiate with your unsecured creditors to pay them what you can afford, not what they want you to pay them. Under the Fair Debt Collection Practice Act, once they are notified that you are represented by an attorney, they are required to stop calling you. One of the major reasons why people file bankruptcy is that they don’t want to put up with the obnoxious and abusive debt collectors calling them at anytime of the day or night.

CREDIT REPAIR

As part of the financial package, our credit repair experts will advise you on what you can do to clean up your credit and to keep your credit clean while you are going through the process.

In a Chapter 7, the debtor may not be able to keep the property and make the payments unless the lender consents to a modification. In a Chapter 7, there is no provision in the Bankruptcy Code for modifying a mortgage loan. Your case last about 3-1/2 to four months and so you need to reinstate the loan before the discharge is entered and the cases close. You either need to bring the loan current or work something out with the lender in between. There is no provision or program to cure the default over time, and once the discharge is entered, the automatic stay is lifted. That means that if any arrearages on the loan have not been cured by that time, the lender can proceed to foreclose on the property. The lien is not discharged in the bankruptcy, even thought the personal debt or obligation is wiped out. If you can’t bring the payments up or make arrangements with the lender during the bankruptcy, the the debtor should seek a loan modification outside bankruptcy in order stay in the house.

If you filed Chapter 13, you cannot modify a mortgage loan secured on a debtor’s primary residence under provisions of the Bankruptcy Code. However, if the lien on the house is totally unsecured, no equity protecting the lien and house is totally underwater) you can strip it off in a “cram down.” Obama said that he would sign such a bill if presented to him, but legislation that would have allowed that died in Congress earlier this year, after much outcry from people complaining that the law should not help people when most people were making their payments, and strong opposition from the Banking Industry.

In a Chapter 13, the debtor needs to get approval for any kind of modification, refinancing or sale of the property, from both the Chapter 13 Trustee and the Court. The debtor may not be able to confirm a Chapter 13 plan unless a 1st deed of trust consents to a loan modification. The question is feasibility. If the debtor’s plan does not propose to cure the default in the Chapter 13, the plan cannot be confirmed. In this case, the debtor may not be able to confirm a plan and will as a result end up losing the house. Another question is whether the loan modification would alter the debtor’s disposable income and increase the amount available to unsecured creditors. If the debtor is able to cure default, the language of Chapter 13 provides that all disposable income must be pledged into the plan. That might mean that if the debtor obtains a loan modification during the pendency of the Chapter 13 plan, both the plan payments and the plan need to be modified to reflect the change in disposable income reflecting decrease in mortgage payments.

The bottom line is that if you can’t afford the payments, contact your lender. The sooner you get started on a loan modification, the better. There have been numerous articles about the effectiveness of loan mod programs. Anyone working in the industry will tell you that it is not easy to make contact with the lenders who have been besieged with loan mod requests. At the same time, while the banks are attempting to ramp up their loan mod programs and have been adding staff, the number of loans in default is expected to increase over the next two years. Like anything, it takes persistence and consistency.

While it might seem like trying to close the barn door after the horse got out, first, the Assembly and Senate have jointly passed bills to ban loan modification companies from asking for upfront fees and make mortgage brokers put their customers’ financial needs ahead of their own commissions. This does not seem to change existing law except to the extent that it eliminates upfront fees altogether, even in cases where the broker has an approved plan on file with the DRE. This provision doesn’t seem to address the original problem but seems to attack a possible solution to the problem. Who is going to work on a loan modification for a troubled borrower when their chances of getting paid are not good?

Next, is a a limitation on the size of pre-payment penalties. One of the sponsors of the bill, Assemblyman Ted Lieu, D-Torrance. stated that although no one was doing risky loans right now, the bills were intended to prevent abuse in five or 10 years to ensure that controls are in place. Assembly bill 260 would bans so-called subprime “negative amortization” loans where the principal amount owed increases even as the borrower makes payments.

It also prevents mortgage brokers from receiving thousands of dollars in special fees for originating subprime loans and those with pre-payment penalties. The bill also limits the size of pre-payment penalties for borrowers who pay off their loans early.

Lastly, and to further encourage litigation in this area, it states that that mortgage brokers have a fiduciary duty to borrowers – that is, they must place the “economic interest of the borrower ahead of the broker’s own economic interest” when making loans.

That provision is especially controversial and opposed by the California Association of Mortgage Brokers. Fred Arnold, a Santa Clarita-area broker and the group’s past president, riled against the bill’s definition of fiduciary duty as vague and warned that it was an invitation to “frivolous lawsuits.” “It’s not necessary,” he said, pointing out that brokers already have a fiduciary duty under the Department of Real Estate.” This appears also to be consistent with the case law.

This is also the second time around for Lieu’s bill. Last year, the governor vetoed a similar broad-based bill by Lieu to rein in mortgage industry practices. Lieu hopes that a compromise can be reached this time, no doubt trying to capitalize on the legislatures recent heroic precedents in this area.

The bills land on Schwarzenegger’s desk as California continues wrestling with more than 410,000 foreclosures since the start of 2007.

Proponents of bill say it’s necessary in the aftermath of unfettered lending practices, painting a picture of rapacious mortgage brokers earning in excess of $20,000 or more for making risky subprime adjustable-rate loans, often to unsuspecting borrowers. Critics of the bill point out that missing, of course, is an IQ test for the borrowers or even a financial quiz to see whether they can afford it. There does not appear to be any suggestion of qualification for a loan and puts all the onus on the lenders.

The California District Attorneys is also among those pushing for new felony penalties for mortgage fraud. The group sponsored a bill now before the governor, Senate Bill 239, by Sen. Fran Pavley, D- Agoura Hills. It would create a specific category of felony mortgage fraud, which the DA’s group calls “one of the linchpins in the demise of the California real estate market and the related crises in the financial sectors.” According to the DA’s Association, the FBI ranks the Sacramento area seventh among U.S. metropolitan areas in reporting mortgage fraud complaints to the FBI.