Although loan modifications don't traditionally fall within the scope of this blog, due to the many homeowners seeking loan modifications, I wanted to share an article I wrote recently on the many changes in state and federal law as a result of the mortgage crisis.
Over the past few months, there has been great turmoil in the housing and mortgage markets. Because numerous Omni clients have contacted us to ask what programs are available to them to modify their mortgage, we prepared the following summary of recent changes in federal and state law regarding loan modifications for your information.
The “Making Home Affordable Plan”
The federal government’s plan, which went into effect March 4, provides financial incentives from the federal government to lenders to help lenders reduce payments to 31 percent of a borrower's income. Lenders can reduce interest rates and lengthen the term of loans to 40 years, even if a borrower is behind on payments.
The plan also helps borrowers who are current with payments but have seen their home's value drop to refinance into newer, cheaper loans. However, the federal plan is not available to many homeowners whose homes have plummeted in value to such a degree that they are now worth less than their combined debt. Borrowers can only owe 5 percent more than the home is worth, which effectively eliminates many Californian homeowners from qualifying.
90-Day Foreclosure Moratorium in California
Gov. Arnold Schwarzenegger signed AB 7XX and SB 7XX earlier this year to create a new 90-day foreclosure moratorium on certain delinquent home loans in California. The new moratorium temporarily halts foreclosures by lenders that haven't tried hard to work out loan modifications or other alternatives to foreclosure with their customers.
Pending State Legislative Fixes
The State Legislature is considering numerous bills to deal with the mortgage crisis. AB 260 (currently pending in the Assembly) would create a fiduciary duty between mortgage brokers and their clients, meaning possible legal consequences if borrowers are given loans that they can't afford. Another bill, SB 239 (currently pending in the State Senate) would create a new category of mortgage fraud in state law, giving authorities more power to prosecute, including new tools for District Attorneys to obtain evidence during mortgage fraud investigations.
Modifying Your Mortgage
If you are interested in modifying your mortgage, we encourage you to research your various options because state and federal law has been changing rapidly. Any modification will take a good amount of preparation, perseverance, and persistence.
While Omni has successfully obtained loan modifications for Omni clients – including settlement offers as low as 30 cents on the dollar – we are aware that most individual homeowners haven’t been so lucky when trying to negotiate with their lenders on their own. Whether the banks are so overwhelmed by loan modification requests that they can’t meet the needs of all their customers, or the banks simply are unwilling to grant loan modifications without the threat of legal action, it is clear that having legal counsel can mean the difference between success and failure when it comes to the difficult task of modifying your mortgage.
For advice on your particular situation, please feel free to give us a call at (415) 250-8131 or email us at johncorcoran@gmail.com for a free consultation.
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